Home > political-economy > Why is the Bank for International Settlements interested in Karl Marx? (Part three)

Why is the Bank for International Settlements interested in Karl Marx? (Part three)

In my previous post, I stated:

In reality, there was nothing in Bohm-Bawerk’s argument to be disproved. Bohm-Bawerk had indeed cited the essential contradiction at the core of capitalism. His problem, however, was to imagine the contradiction to be a defect of Marx’s theory, and not a fatal flaw laying at the heart of the capitalist mode of production itself.”

Bohm-Bawerk had inadvertently confirmed the rather grim future arrived at by Marx’s theory: Capitalism would kill the so-called free market, and in so doing, would destroy itself. It was, as Marx argued, creating its own gravediggers, a mass of directly social laborers who did not need it, and would see it as an impediment to their very survival, owing to obstacles it put in the way of its own operation.

By the 1970s, economists finally were forced to acknowledge there was in fact no inconsistency in Marx’s argument. Marx had, just as Bohm-Bawerk accused him, arrived at a theoretical description for why prices, although resting on the socially necessary labor time required to produce commodities, nevertheless appeared to reflect the prices of production of these commodities and not their labor times. It was not, as Werner Sombart feared, that from Marx’s labor theory of value “emerges a ‘quite ordinary’ theory of cost of production”, but precisely that Marx’s theory predicted from the first that the value of commodities must appear in the form of prices of production.

Moreover, Marx had demonstrated his proof almost in real time, so to speak, in front of his audience in a painstakingly detailed series of volumes — subject to the critical purview of his opponents. He had, as it were, made the elephant in the room — socially necessary labor time — disappear before the disbelieving eyes of his skeptical audience. It was a performance so dramatic and unprecedented, it took decades for the skeptics even to figure out what they had just witnessed with their own eyes.

The acknowledgement of Marx’s triumph took the form of a paper by Paul A. Samuelson, and was couched in the form of the complaint echoing that leveled against Marx by Sombart, as previously quoted by Bohm-Bawerk :

“…if I have in the end to explain the profits by the cost of production, wherefore the whole cumbrous apparatus of the theories of value and surplus value?”

Taking a cue from Sombart, Samuelson, in a paper titled “Understanding the Marxian Notion of Exploitation: A summary of the So-Called Transformation Problem Between Marxian Values and Competitive Prices”, introduced his so-called erasure method arguing,

It is well understood that Karl Marx’s model in Volume I of Capital (in which the “values” of goods are proportional — albeit not equal — to the labor embodied directly and indirectly in the goods) differs systematically from Marx’s model in Volume III of Capital, in which actual competitive “prices” are relatively lowest for those goods of highest direct-labor intensity and highest for those goods of low labor intensity (or, in Marxian terminology, for those with highest “organic composition of capital”). Critics of Marxian economics have tended to regard the Volume III model as a return to conventional economic theory, and a belated, less-than-frank admission that the novel analysis of Volume I — the calculation of “equal rates of surplus value” and of “values” — was all an unnecessary and sterile muddle.’

Samuelson gave a simple straightforward explanation of his “erasure method”:

I should perhaps explain in the beginning why the words “so-called transformation problem” appear in the title. As the present survey shows, better descriptive words than “the transformation problem” would be provided by “the problem of comparing and contrasting the mutually-exclusive alternatives of `values’ and `prices’.” For when you cut through the maze of algebra and come to understand what is going on, you discover that the “transformation algorithm” is precisely of the following form: “Contemplate two alternative and discordant systems. Write down one. Now transform by taking an eraser and rubbing it out. Then fill in the other one. Voila!

For all his genius, Samuelson argued, Marx had produced a theory which offered no greater insight into the social process of production than was already present in the form of mainstream economics. It could, for this reason, be entirely ignored.

Ignored also, however, would be the entire point of Marx’s “unnecessary and sterile” detour: namely, to demonstrate in comprehensive and theoretically ironclad fashion why the capitalism mode of production is doomed.

This only deepens the mystery of David Bieri’s interest in a theory routinely dismissed by economists as, at best, a vestigial remnant of classical political-economy. Why would this former bureaucrat of the Bank for International Settlements still be reviewing an obscure technical problem of a long dead theory?

The Wikipedia describes the bank this way:

The Bank for International Settlements (BIS) is an intergovernmental organization of central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks.” It is not accountable to any national government. The BIS carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. It also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the Hague agreements of 1930.

Note the statement: The BIS “…is not accountable to any national government…”

The Wikipedia adds:

As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 58 member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Failures to keep monetary policy in line with reality and make monetary reforms in time, preferably as a simultaneous policy among all 58 member banks and also involving the International Monetary Fund, have historically led to losses in the billions as banks try to maintain a policy using open market methods that have proven to be unrealistic. Central banks do not unilaterally “set” rates, rather they set goals and intervene using their massive financial resources and regulatory powers to achieve monetary targets they set. One reason to coordinate policy closely is to ensure that this does not become too expensive and that opportunities for private arbitrage exploiting shifts in policy or difference in policy, are rare and quickly removed.

Note, again, the curious sentence: “As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 58 member central banks.”

This seems to imply member central bankers are routinely communicating the monetary policy of their sovereign nation states to non-nationals, despite the obvious national security implications of such communications. While Federal Reserve policy is so sensitive and, by testimony of all concerned, necessarily shrouded in secrecy that Ron Paul was excoriated for demanding a mere audit of the Federal Reserve operations — this, we are told, is necessary to insulate Fed operations from political pressure — the Fed is telling other central bankers the graphic details of the monetary policy of the United States.

So, other central bankers know more about what the Fed is up to than the American public? Is this right? Although the BIS is not answerable to any sovereign authority, this is not the least true for the monetary policy of sovereign nations. The monetary policies of these sovereign nations are routinely being discussed by a committee of 58 central bankers.

At this point, you probably are thinking I am going to run off on some conspiracy theory tangent:

“Jews are running the global system of states through their banks.”

or worse,

“The eye on the back of the dollar bill is emitting tracking information on your location to the NSA at this very moment.”

Perish the thought, I have no interest in such theories. Democracy is obviously a permanent and ongoing conspiracy of society against itself — who needs a theory to explain that? Besides, facts are far more convincing than any silly theory.

I don’t know, but the above quotes seems to me to say the central bankers and their private counterparts have been helping in the management of the world economy for decades. And, their errors have caused untold losses to the global economy. Like, for instance, the most recent financial meltdown? Inquiring minds want to know.

The Wikipedia goes on to state:

Two aspects of monetary policy have proven to be particularly sensitive, and the BIS therefore has two specific goals: to regulate capital adequacy and make reserve requirements transparent.

It seems the BIS has been doing much more than communicating monetary policy between member banks. It has been deciding banking regulations of the various sovereign nations, and deciding what sectors of the various national economies qualify for what loans. For instance, this:

Historically, the BIS did set some standards which favoured lending money to private landowners (at about 5 to 1) and for-profit corporations (at about 2 to 1) over loans to individuals. These distinctions reflecting classical economics were superseded by policies relying on undifferentiated market values – more in line with neoclassical economics.

The Wikipedia notes, the bank was almost liquidated owing to its history of collusion with, and facilitation of, Nazi looting of conquered nations:

The BIS was formed in 1930. The main actors in its establishment were the then-Governor of The Bank of England, Montagu Norman, and his German counterpart Hjalmar Schacht, later Adolf Hitler’s finance minister. The Bank was originally intended to facilitate reparation payments imposed on Germany by the Treaty of Versailles after the First World War. The need for the bank was suggested in 1929 by the Young Committee, and was agreed to in August of that year at a conference at the Hague. A charter for the bank was drafted at the International Bankers Conference at Baden Baden in November. The charter was adopted at a second Hague Conference on January 20, 1930.

During the period 1933–45, the board of directors of the BIS included Walter Funk, a prominent Nazi official, and Emil Puhl, who were both convicted at the Nuremberg trials after World War II, as well as Herman Schmitz the director of IG Farben and Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo. There were allegations that the BIS had helped the Germans loot assets from occupied countries during World War II.

According to the Wikipedia, the bank was so notorious in its complicity with the Nazi regime, Roosevelt tried to kill it. But after he died, Truman reversed that decision. So, we have an organization created by an agreement between future members of the Nazi Party and the Bank of England, known to have an unsavory past, managing the global economy, and deciding who gets what credit in allegedly sovereign nations.

This mystery of the BIS interest in Marx’s theory is getting more and more intriguing. Why is this Nazi-British hangover, sniffing around Marx’s corpse?

Here is a possible clue on why the BIS is interested in Marx: a paper delivered by Tiago Lopes, to the 2011 conference of the International Initiative for Promoting Political Economy titled: “The Historical Phases of the Debate on the Transformation of Values into Production Prices”.

In the paper, Lopes argues Marx’s theory retains some validity among economists because,

“…due to the changes in the definition of the problem, in the character of the critique and in the subject under study, there is scientific progress in the debate. In this context, it is possible to comprehend that, even on an unorganized framework, the debate on the transformation problem is moving to the analysis of the value form and to the theory of possible economic planning within the capitalist society.”

What Lopes is suggesting here is quite interesting: there is renewed interest in Marx’s theory because it is being adapted to assist in the management of fascist economies.

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